Everything you need to find out about what cryptocurrencies are, the way that they work, and exactly how they’re valued. At this point you’ve probably heard about the cryptocurrency craze. Either a relative, friend, neighbor, doctor, Uber driver, sales associate, server, barista, or passer-by on the street, has probably said how he or she is getting rich quick with virtual currencies like bitcoin, Ethereum, Ripple, or one of the lesser-known 1,300-plus investable cryptocurrencies.
But just how much do you find out about them? Considering how many questions I’ve received out of the blue through the aforementioned group over the last month, the reply is probably, “not really a lot.”
Today, we’ll change that. We’re planning to walk from the basics of cryptocurrencies, step-by-step, and explain things in plain English. No crazy technical jargon here. Just sticks and stones samples of how today’s cryptocurrencies work, what they’re ultimately seeking to accomplish, and exactly how they’re being valued.
Let’s begin. Exactly what are cryptocurrencies?
To put it simply, cryptocurrencies are electronic peer-to-peer currencies. They don’t physically exist. You can’t pick up a bitcoin and hold it within your hand, or pull one from your wallet. But just since you can’t physically hold a bitcoin, it doesn’t mean they aren’t worth anything, as you’ve probably noticed from the rapidly rising prices of virtual currencies over the past couples of months.
How many cryptocurrencies exist? The amount is usually changing, but based on CoinMarketCap.com at the time of Dec. 30, there have been around 1,375 different virtual coins that investors may potentially buy. It’s worth noting that the barrier to entry is especially low among cryptocurrencies. In other words, which means that for those who have time, money, and a team of people that understands how to write computer code, you own an chance to develop your own cryptocurrency. It likely means new cryptocurrencies continues entering the space over the years.
Why were cryptocurrencies invented?
Technically, the concept of a digital peer-to-peer currency was being tinkered with decades ago, nevertheless it wasn’t truly successful until 2008, when bitcoin was conceived. The basis of bitcoin’s creation, and all of virtual currencies that have since followed, ended up being to fix numerous perceived flaws with the way funds are transmitted from one party to another one.
What flaws? For instance, take into consideration how long it may take for any bank to settle a cross-border payment, or how banking institutions have been reaping the rewards of fees by acting as being a third-party middleman during transactions. Cryptocurrencies work around the traditional financial system with the use of blockchain technology.
OK, just what the heck is blockchain?
Blockchain is definitely the digital ledger where all transactions involving a virtual currency are stored. If you purchase bitcoin, sell bitcoin, make use of bitcoin to buy a Subway sandwich, and so on, it’ll be recorded, in an encrypted fashion, in this digital ledger. The same thing goes for other cryptocurrencies.
Consider blockchain technology as the infrastructure that underlies virtual coins. It’s the cornerstone of your house, while the tethered virtual coin represents all of the products built on top of that foundation.
Why is blockchain a potentially better choice compared to the current system of transferring money?
Blockchain offers numerous potential advantages, but is made to cure three major problems with the current money transmittance system.
First, blockchain technology is decentralized. In simple terms, this just means there isn’t a data center where all transaction information is stored. Instead, data out of this digital ledger is stored on hard disks and servers all around the globe. The reason why this is achieved is twofold: 1.) it ensures that no one person or company could have central authority more than a virtual currency, and 2.) it acts as a safeguard against cyberattacks, to ensure that criminals aren’t able to gain control over a cryptocurrency and exploit its holders.
Secondly, as noted, there’s no middleman with blockchain technology. Since fmlxdu third-party bank is required to oversee these transactions, the thought is the fact that transaction fees may be less than they currently are.
Finally, transactions on blockchain networks may get the chance to settle considerably faster than traditional networks. Let’s understand that banks have pretty rigid working hours, and they’re closed one or more or two days every week. And, as noted, cross-border transactions may be held for several days while funds are verified. With blockchain, this verification of transactions is definitely ongoing, which means the chance to settle transactions a lot more quickly, or possibly even instantly.